Mitsui O.S.K. to Pare Debt as Container Shipping Boosts Profit

Mitsui O.S.K.’s cash from operations rose to 65 billion yen in the three months ended Sept. 30, the highest level in two years, according to data compiled by Bloomberg. Photographer: Haruyoshi Yamaguchi/Bloomberg

Dec. 3 (Bloomberg) -- Mitsui O.S.K. Lines Ltd., operator of
the world’s largest merchant fleet, will reduce debt for the
first time in four years as profit rises on increased demand to
ship electronics and furniture to the U.S. and Europe.

Interest-bearing debt will drop to as low as 750 billion
yen ($9 billion) by the end of March, Shugo Aoto, head of
finance, said in an interview in Tokyo on Nov. 24, compared with
775 billion yen at the close of the previous financial year.

Mitsui O.S.K. hasn’t made a strategic investment this year
and is focusing on strengthening its finances amid a global
container shipping rebound, while Japanese rivals Nippon Yusen
K.K. and Kawasaki Kisen Kaisha Ltd. have purchased stakes in a
deep-sea oil tanker business and a freight forwarder. Profit is
forecast to jump fivefold this year and Mitsui O.S.K. plans to
use cash to pay maturing bonds.

“It’s a better strategy than investing in a new field that
they’re not confident about,” said Ryota Himeno, an analyst at
Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo. “They’re
accelerating their emphasis on constraining debt.”

The drive to trim debt has helped Mitsui O.S.K. secure the
highest credit ranking among Japan’s three biggest sea carriers.

Improved Ratings

Moody’s Investors Service last month raised Tokyo-based
Mitsui O.S.K.’s credit outlook to stable, citing the prospect
for an improvement in the company’s financial profile. It rates
the company’s A3, its seventh-highest in the investment grade.

Nippon Yusen last week announced plans to buy a 50 percent
stake in Knutsen Offshore Tankers ASA to expand into deep-sea
oil transport in countries including Brazil. Kawasaki Kisen
earlier this year said it had acquired a 51 percent stake in Air
Tiger Express Co.

Stake Investment

Mitsui O.S.K. increased its share in Gearbulk Holding Ltd.
to 49 percent last year, its most recent stake investment,
according to data compiled by Bloomberg.

Nippon Yusen predicts its interest-bearing debt will
increase to 1.2 trillion yen by the end of March, compared with
1.1 trillion yen at the end of March this year. Kawasaki Kisen
predicts a gain to 560 billion yen, compared with 516 billion
yen.

Mitsui O.S.K. plans to use cash to repay 49 billion yen of
bonds maturing next year and should be able to avoid issuing new
bonds, Aoto said. The company has 225 billion yen of bonds
outstanding, according to data compiled by Bloomberg.

The carrier will also rely on short-term loans rather than
long-term bonds for any financing needs, as it predicts Japan’s
central bank will keep interest rates near zero, Aoto said.

Rate Outlook

“Borrowing at a flexible interest rate works out cheaper
than at a long-term fixed rate,” said Aoto. “I don’t think the
Bank of Japan is going to raise rates next year or the year
after.”

Net income will surge to 65 billion yen in the 12 months
ending March 2011, compared with profit of 12.7 billion yen in
the year-earlier period, Mitsui O.S.K. said on Oct. 29.

The expected gains are being driven by a return to profit
at the shipping line’s container division.

Container shipments to the U.S. from Japan, China, Vietnam
and other Asian countries rose for a ninth month in August,
surging 18 percent, compared with a year earlier, to 8.5 million
boxes, according to the latest available figures from the Japan
Maritime Center.

Nippon Yusen predicts a profit of 76 billion yen this
fiscal year, compared with a loss of 17 billion yen last year.
Kawasaki Kisen is forecasting net income of 32 billion yen,
following a loss of 69 billion yen last fiscal year.

Mitsui O.S.K. rose 0.5 percent to 584 yen at the 3 p.m.
close of trading in Tokyo yesterday. The shares have gained 19
percent this year, compared with a 3.6 percent decline in the
Nikkei 225 Stock Average.

Mitsui O.S.K. operated 905 vessels at the end of March,
compared with 803 ships at Nippon Yusen.